The Downside of Full Pay Transparency

I have worked for a company with full pay transparency and for several with full opacity. I prefer opacity.<p>At the transparent company, I was hired in as one of the highest paid employees at a time that the company was struggling. Everyone ranked higher than me had taken a voluntary pay cut, to the point that some of them were paid less than me.<p>I felt guilty for taking more money than them, but conflicted as the problems were not of my making. I felt some resentment at pay peers that were underperforming. I was able to observe the performance of other employees and knew which ones were being treated fairly and not.<p>It was information that did nothing to benefit me, my peers or those below us in the organization. It led to more bad feelings than good and I am grateful that I do not have that information at my current employer.<p>I prefer sites like Glassdoor where you can get a general idea of what your coworkers might make, without the fine resolution of a name to dollar amount mapping.

Yet another corporate lobbyist type response<p><pre><code> - You can&#x27;t have net neutrality, it&#x27;ll confuse customers - Food origin labeling? Bad, people will realize we have no idea where food came from. - Single payer? But it&#x27;ll undermine the whole employer paid insurance patchwork. - Close tax loopholes? We&#x27;ll just push rich people to move money offshore. - Stop bombing the world? Where&#x27;s all the weapons, oil and mercenary companies gonna make money from? - Share compensation data? People will quit once they realize their pay grading mechanism is subjective and arbitrary.</code></pre>

I&#x27;ve seen team chemistry dissolve when pay information was released.<p>The problem is with egos, Employee A might view themselves as more valuable to the company than Employee B and vice versa. If Employee B gets a raise, Employee A will want one too, or a higher one. A spiral of trying to get a higher salary relative to other team members can begin.<p>Also, Employee A and Employee B might have private salaries that meet or exceed their expectations and everyone is happy. When salary information is public, unhealthy comparing can begin. Even though they&#x27;re grateful for what they have, they see that more might be available if they ask for it.

The problem with pay transparency starts with the problem of determining compensation itself. If compensation could be a direct output of an algorithm that was highly accurate based on attributes of an individual that highly predict their market worth, pay transparency works well because people could agree that this person is being paid fairly. Also, if everyones pay could be dynamically determined it would help too. Basically, people get hired and get their salary set. Then new people are being recruited and market dynamics may have changed and now maybe a higher salary is required to attract this candidate.<p>I&#x27;m not being very articulate here, but i&#x27;d say the problem with pay transparency isn&#x27;t the transparency part, but the actual process of determining fair&#x2F;market-clearing wages for employees.

If you can&#x27;t explain why someone gets paid less than someone else then you have a problem that shouldn&#x27;t be solved by keeping people in the dark.

&gt; And the legal basis for such rules [prohibitions on employees sharing salary information with their peers] is at best murky—indeed, a large number of U.S. states now explicitly ban them.<p>And besides that, the National Labor Relations Board considers employees discussing pay to be protected concerted activity. I&#x27;m not sure if just having the rule is illegal, but enforcing it certainly is.

I work for a company with full pay transparency – well, complete transparency across all parts of the organisation – I can&#x27;t imagine working in an opaque environment ever again. I love it.

Transparency aside, I&#x27;ve seen little evidence that employers can properly measure the exact value an employee adds to their organization.<p>The reason for most of these problems lies there. If employers could solve that there wouldn&#x27;t be any problem. However, since that isn&#x27;t the case, employees can take advantage of the opaqueness.<p>---<p>Case and point: if you could measure the value, you could figure out what is valuable, and if you can figure out what&#x27;s valuable and what qualities it takes to create said value then your organization would already be successful.

Reflecting on this article brings up a lot of contractions in my own past thinking:<p>I wouldn&#x27;t want to work somewhere with public salaries, because I suspect that like unions they wind up enforcing mediocrity. I&#x27;m confident enough in my own abilities that I want the possibility of out-performing and being compensated for it.<p>On the other hand, as an employee I <i>would</i> want freedom to discuss salary with fellow employees, to get better information when it&#x27;s time to negotiate raises and promotions.<p>Also, in a professional services firm, which I think is the ideal structure for software developers to capture more of their value, the partners all know each other&#x27;s earnings (at least assuming the firm is of modest size). What&#x27;s more, I agree pretty strongly with David Maister&#x27;s recommendation in <i>Managing the Professional Services Firm</i> that partner profit-sharing should be based on seniority rather than some metric, since that is less likely to distort incentives and cause resentment.<p>It seems like I am all over the place! I&#x27;m not yet convinced these are <i>true</i> contradictions, but having them laid side-by-side does force me to ask why not.

&quot;nearly 40% perceived themselves as performing within the top 5% of their peers.&quot;. That&#x27;s exactly the problem. I&#x27;ve been well paid my whole life, but in comparison with other peoples&#x27; productivity, I should have been paid thrice as much. I don&#x27;t complain; everybody has to eat, everybody has to take care of their families, etc. But I am damn sure all these people would not tolerate knowing even that I got as little as 30% more.<p>This is one reason why I don&#x27;t have a typical job for almost a decade now. I get interview invitations from big SV companies, but I hardly ever get invitations from local software houses, and when it happened, it went nowhere because they wanted to pay the average ERP programmer salary, citing &quot;internal politics&quot;.<p>It <i>also</i> happens when I do per-hour consulting work - my rate is considered high compared to what Dummy Database Consulting charges, so I have to settle for lower values, but at least the values are higher in absolute terms.

<i>&gt; Surveys done shortly after this found that employees who went to the website and discovered they were paid below the median for their peers were much less satisfied on average with their jobs and more likely to express an intent to depart than those who were paid below the median but didn’t receive the prompt to compare their pay. So in this case, full pay transparency encouraged greater overall dissatisfaction and possibly turnover—the exact opposite of the power that full transparency has in the right situations to motivate employees and attract talent.</i><p>What really makes people unhappy: telling them that they are underpaid, or underpaying them?

If your employees are angry and think that they&#x27;re not paid fairly, that&#x27;s on the employer to fix. Either it&#x27;s perceptual, and the employer needs to clarify something, or it&#x27;s a real gap, and the employer is at fault. This article suggests that the solution is to continue not telling people what they are paid. I concede that humans have terrible judgement in many things. This is why it&#x27;s absolutely necessary to be as transparent as possible. Tl;dr: If your employees are complaining about unequal pay, you&#x27;re doing something wrong.

So.... Companies used to using information-hiding to manipulate negotiations with employees find that Thierry culture and skill sets aren&#x27;t well adapted to maintaining the &#x27;house advantage&#x27; in a free and open market place for talent.<p>This is my surprised face.

There are numerous thought experiments on how transparent salaries affect team cohesion and go against human nature.<p>Meanwhile, professional sports teams and the military, who rely on team cohesion more than random white collar professionals, have transparent salaries. If teams worked better with opaque salaries wouldn’t these ultra competitive&#x2F;life-or-death industries have figured it out?

So the downside of Full Pay Transparency appears to be that it causes the labour market to function as a market by increasing the information necessary to eliminate sub-optimality.<p>Who knew?<p>It isn&#x27;t the company that provides you with job security. It is the job market. If everybody who thinks they are being underpaid moves on, it soon sorts itself out.

I can&#x27;t really articulate why, but to me my salary and compensation is extremely private. I&#x27;m not ashamed of my compensation and I could justify it (compared to my peers for example), but it still seems like something that is extremely private. When I ask myself why I would care if my coworkers, family, friends, etc knew my compensation I can&#x27;t come up with a solid answer. I am in my early 30s, if that matters.<p>If we think of compensation being directly and only related to the value that that person brings to a company, it seems like we&#x27;re neglecting half the equation. The flow of value goes the other way as well - I would require higher compensation for the same value delivered if I did not like the company or the work environment for example. I could also require lower compensation if I really liked the company or work environment. How does this discrepancy have any bearing on compensation compared to a peer who is (for the sake of argument) delivering the same exact value to the company? This half of compensation is extremely personal and subjective.<p>If transparent compensation becomes the norm (or legally required), I can see myself migrating back to consulting work where I would charge by project or deliverable which would totally obscure my hourly compensation even if the contract itself was public.

I think the hardest bit about salaries is that most people bring an intangible amount of value to their companies, with pay usually determined by the local market.<p>For example, I&#x27;m not sure how you&#x27;d accurately determine how much someone in HR middle management brings over the course of a year, or for someone working in corporate PR.<p>The company I work for has extremely transparent pay - you keep a % of the amount you bring in. It&#x27;s no great secret how much anyone makes in a given month, nor how much the company brings in. But this only really works in that we&#x27;re all working sales jobs, so you don&#x27;t have to justify anything.

&gt; Full pay transparency works well in two settings. One is where pay levels are based simply on rank and tenure, and perhaps location—not on performance. Think government agencies.<p>But, that&#x27;s not how government agencies work; in the federal general schedule system initial pay steps within a grade can vary based on special needs of the hiring agency or special qualification of the candidate, and advancement in steps within the grade is based not only on longevity but acceptable performance.<p>State and local civil service systems I&#x27;ve seen seem to be generally similar.

This Joel On Software article[0] is my favorite work on compensation. It details a ladder system that exposes everyone&#x27;s salary as well as the requirements to move up. The lack of individual bonuses is an interesting twist and I&#x27;m thinking that it might not work in a large company where you can&#x27;t directly influence the direction of the company.<p>Then again, when requirements are clear it becomes much easier to make decisions that benefit the company. &quot;Maybe we don&#x27;t need to have the company retreat in Tibet this year.&quot;<p>[0] <a href="https:&#x2F;&#x2F;www.joelonsoftware.com&#x2F;2000&#x2F;08&#x2F;30&#x2F;fog-creek-compensation&#x2F;" rel="nofollow">https:&#x2F;&#x2F;www.joelonsoftware.com&#x2F;2000&#x2F;08&#x2F;30&#x2F;fog-creek-compensa...</a>

The concept of salary is interpreted by people in all different ways since always, therefore you won&#x27;t achieve nothing but grudge and dysfunctional teams on long term, unless pays are really fair and people are really the right ones for implementing such a system.<p>Some people see their self worth in their job, some in how much they earn, some mixed, some in how much good they do at work, some in having a family, etc. One fixed component is the salary which can&#x27;t be the lever among people but it can certainly be interpreted as such, therefore should be private. Also, if I am a better negotiator than you are, why should I be perceived in a negative way? &quot;Oh he works less than me, but he earns more&quot;. Maybe he is better at selling himself (?).<p>But it&#x27;s ok that companies do such experiments, otherwise we would not know the outcome...

No surprise that a Murdoch publication hell bent on proselytizing Reganomics opines against open salary information. Nothing here stands muster - in school, kids freely share their grading information, and seldom do they not understand why an objectively better performance earned someone a better grade

&gt;<i>In a study of engineers at two major Silicon Valley companies conducted some years ago, I found that nearly 40% perceived themselves as performing within the top 5% of their peers. Ninety-two percent felt they were in the top quartile, and only one engineer felt his or her performance was below average.</i><p>This is the heart of the problem. People think they are more deserving than they actually are. When they find out that they&#x27;re not getting paid as much as they think they should, relative to people who they wrongly think they perform better than, they will be upset at management and envious of their peers.

Pay transparency could cause a revolt by women when they see they&#x27;re paid less than men. This is not studies they were quoting but they could see themselves paid less than men for same work, etc. BBC and several other places are having this issue.<p>Without the pay transparency, the women would&#x27;ve been oblivious.

I like the Norwegian model, full tax&#x2F;income transparency.

This article says that it&#x27;s easier and better for companies to keep their unfair compensation schemes private than risk employee unhappiness by making them transparent.<p>Sure, it&#x27;s easier and better <i>for companies</i> to keep their dirty laundry hidden, but it&#x27;s better for employees. That&#x27;s the whole point of transparency: to see the unfairness, and to work to fix it. And if you don&#x27;t fix it, you won&#x27;t be able to attract talent.

ITT people assuming they have an objective view of coworkers performance.

All income should be reported.

&gt; But it can also have the opposite effect, demoralizing employees and driving valuable talent away, especially when it isn’t clear why some people are paid more than others.<p>Yes, if only something could be done about that.